Raising tax rates does not mean more tax revenue

cornopeanDecember 8, 2012

This chart is for everyone who believes that raising the tax rate on the rich (or on anyone) will bring in more tax revenue.
Notice that when the tax rate was the highest, no add'l tax revenue was collected. There is no correlation between high tax rates and high tax revenue. Again, it might feel good to tax the rich, but is it good?

@esh_ga how does raising taxes on the rich solve the debt crisis? it doesn't even come close to lowering the deficit much less the debt. that's why I posted somewhere else that even if you took ALL the income of the rich, it wouldn't eliminate the deficit.
Furthermore, history shows us that raising tax rates does NOT mean an increase in revenue. So raising the tax rates does NOTHING for us. NOTHING.

Oh, one of those graphs, were the un-cited source you used in the OP used one line from one graph, and another line from another graph, photoshopped then together, and this is supposed to prove what, exactly?

It is this simplistic sort of stuff that makes having a useful conversation hopeless.

How is income figured-the tax code has changed completely over the years and the part of the money you make every year that is considered income has changed especially for the seriously rich. If the part of the income of the seriously rich that is considered for taxation is drastically reduced (as it has been) then you can indeed have a static revenue stream from a vastly increased number of uber rich people.

@esh_ga Sure. Raising tax rates will do nothing b/c history shows that there is no correlation between high tax rates and increased tax revenue. John Stossell provides an example if you are willing to listen. He writes;

"Maryland created a special "tax on the rich" that legislators said would bring in $106 million. Instead, the state lost $257 million. Some of Marylands rich just left the state. When New York state hiked its income tax on millionaires, billionaire Tom Golisano moved to Florida, which has no personal income tax. "[M]y personal income tax last year wouldve been $13,800 a day," he told us. "Would you like to write a check for $13,800 a day to a state government, as opposed to moving to another state?""

So there is the reason. When you raise tax rates, you give rich people an incentive to evade that tax either by moving themselves, or moving their money, or any other of a million ways to evade the tax.

Second, even if you raised the tax to a rate of 100 percent (and the rich were silly enough to keep working), this would not eliminate the deficit.

@momj47 you're a little pessimistic about stats. We have to base our policy decisions on facts. If we can't do that, then we are doomed.

Take your chart. It shows the tax rates decreasing. What is interesting, is that when the tax rate decreased, the tax revenue actually INCREASED!

Again, there is no correlation between high tax rates and increased revenues. The flip works as well. There is no correlation between lower tax rates and decreased revenues.

In the first Obama election, Charlie Gibson asked this question.

GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, "I certainly would not go above what existed under Bill Clinton," which was 28 percent. It's now 15 percent. That's almost a doubling, if you went to 28 percent. But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in EACH INSTANCE, when the rate dropped, revenues from the tax INCREASED; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went DOWN. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

A study on the state of New Jersey showed exactly the opposite-people did not move.

Did the decrease in expected revenues have to do with people moving or did it have to do with the flattened economy?

When a chart like this is not recalibrated for changes in tax code the information is not relevant because you are comparing white chickens and space aliens. If it does not tell you what the percentages are percentages of then it is only decorative.

@patriciae what kind of nonsense is this? what info is it lacking? it demonstrates perfectly my contention here....which is that high tax rates historically did not equate to increased tax revenues. are you saying the chart doesn't demonstrate this? what information is it missing or are you unwilling to face facts that contradict your narrative?

""Would you like to write a check for $13,800 a day to a state government, as opposed to moving to another state?""

We are talking about increasing federal tax rates, not state tax rates. Yes they probably could move the money to the Cayman's to avoid paying taxes, but they do that now anyway. That's another issue that needs to be addressed, moving money out of the country to avoid paying taxes.

I dont advocate mass changes in our tax structure over night because it would certainly have some unintended consequences-like putting lots of tax accountants out of work and thereby tanking the economy. I certainly would want changes made that tax peoples real incomes-I dont see why you would exempt income just because it was made from investments of money. I believe we need to move back to a system that taxes the wealthy more heavily just to do what income taxes were originally intended to do-not only raise revenue but to also limit wealth-Progressive taxes.

@patriciae There are always exceptions but in the end, the incentive will always have its effect. People are always going to respond to incentives and if you raise the tax on the rich, then the rich are going to leave or do whatever it takes to evade the tax. To deny this is just wishful thinking.

@susanilz5 the easy to way to stop people moving money to tax shelters is.....to remove the cause. and in this case, the cause is a tax code that punishes wealth.
Let's see....we pass laws that punish wealth, then we complain when people move their wealth to tax shelters, so we pass a law to stop people from moving their money to tax shelters. and so it goes, one law requires five more laws until soon enough we are drowning in laws.

There is an easier way....just pass a simple flat tax and let free people stimulate the economy.

@patriciae seriously??? you're worried about tax reform b/c of the tax accountants who would get put out of work? were you worried about all the workers in typewriter factories when the personal computer came out?
Give me a break.

"Notice that when the tax rate was the highest, no add'l tax revenue was collected. There is no correlation between high tax rates and high tax revenue. Again, it might feel good to tax the rich, but is it good?"

The original chart does not say what the OP wrote. What this chart does portray is that tax collections as a % of GDP remained fairly steady with changes in rates. It does NOT say that 'no additional tax revenue was collected'. Your chart says nothing about absolute $ collected. Also, because tax receipts as a % of GDP were fairly steady, one absolutely needs to know what GDP was doing during this period before making comments about absolute tax revenues and a tie to tax rates.